Analyst advises buying Netflix on drawdown. Are fears about Warner exaggerated?

Analyst HSBC Mohammed Khallouf believes that the potential of Netflix shares assumes growth of more than 30% relative to the last closing. In his opinion, the sale of securities after the service announced plans to acquire part of the business of Warner Bros. Discovery created an attractive entry point for investors.

HSBC analyst Mohammed Khallouf initiated coverage of shares of streaming service Netflix with a "buy" recommendation and a target price of $118. This suggests a growth potential of 31.9% from the level at the close of trading on January 12. According to the analyst, the decline in Netflix quotes after the company announced plans to acquire part of the business of Warner Bros. Discovery (WBD) can be seen as a good entry point, writes Barron's.

Halluf expects the Warner Bros. deal, if finalized, to boost Netflix's earnings per share by 2-4% between 2028 and 2029. "We also see the potential for more tangible benefits through potential [company] revenue synergies," he wrote, predicting that Netflix will be able to leverage Warner's extensive library of content to strengthen its offering and grow subscribers, including by combining HBO Max with its own streaming platform.

Buying Warner Bros. could also be a way for Netflix to respond to the challenges of a saturated domestic market with a relatively weak content portfolio and the growing popularity of short-form video formats - such as Alphabet's TikTok and YouTube, the analyst points out. An additional growth driver, according to Hallouf, could be Netflix's expanding presence in "underpenetrated global markets," including, for example, India.

Since Dec. 5, when Netflix announced plans to acquire Warner Bros. for $27.75 per share and then spin off the cable business into a separate company for investors, Netflix securities have fallen 12%. Over the same period, the S&P 500 index added 1.6%. At the premarket on January 13, the securities of the site grew by 0.3%.

Wall Street investors are concerned that by doing a deal with WBD, Netflix could overpay for the asset - especially amid a rival offer from Paramount Skydance of $30 a share for all of Warner Discovery, Barron's points out.

On January 13, it was reported that Paramount Skydance announced that it intends to nominate candidates to WBD's board of directors to prevent its merger with Netflix. Paramount has also filed a lawsuit against WBD in court, The New York Times reported. In it, Paramount demands that Warner Bros. disclose details of why its board found Netflix's $82.7 billion offer to buy the company more favorable. WBD's board had previously rejected Paramount's $108 billion offer to buy the company at least twice and backed a deal to sell a significant portion of its business to Netflix.

This article was AI-translated and verified by a human editor